China June seaborne iron ore set to rise to record despite hefty stockpiles

China’s June seaborne iron ore imports are on track to rise to a record high, data on Thomson Reuters Eikon showed, stoking concerns of oversupply as hundreds millions of iron ore are being stockpiled at Chinese ports.

Iron ore arrivals for June are set to be 98.22 million tonnes according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts. That would be the highest ever for the Supply Chain data going back to February 2016.

The iron ore consumed by the world’s biggest steelmaker mainly arrives by ship from miners in Australia and Brazil.

The flood of imported iron ore will be piled on top of the 155.88 million tonnes of iron ore currently held at Chinese ports, according to data from consultants SteelHome.

The stockpiles reached a record 161.98 million tonnes in early June and are 42 percent higher than the five-year average of 113.45 million tonnes.

Iron ore imports are rising as Chinese steel mills need raw materials to increase their output as they try to reap the benefits of higher profit margins, said a Shanghai-based iron ore trader. Margins are between 700 yuan ($106) to 800 yuan ($121) a tonne, according to consultants MySteel

Steel output is expected to climb despite tighter environmental inspections at plants across the country, said Richard Lu, a steel analyst at consultants CRU.

“Mills will try to find ways to ramp up as much production as they can in the coming months in order to cash out fat prices”, he said.

Earlier this month, China said it will expand environmental inspections to more cities and regions in a new round of checks from June to April 2019 targeting heavy industry, including the steel sector, energy and transportation.

The surging imports and increasing inventories of iron ore have pushed benchmark Dalian iron ore futures to 467.50 yuan a tonne as of Wednesday, down 18 percent from this year’s peak of 569.50 yuan in January.

More iron ore is expected to arrive in the second half of 2018 as overseas miners aim to increase output to meet their annual targets.

“We may see 40 million tonnes more to come this year compared to a year ago…But meanwhile output at domestic mines is declining,” said the Shanghai-based iron ore trader.

China produced 67.25 million tonnes of iron ore in May, according to National Bureau of Statistics, down 5 percent from last year.

“It is still uncertain whether the increase from imports would be offset by a decrease at domestic miners. It could still be a glut, but also could be temporarily short,” said the trader.